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Mexican Labor Law Reform of 2012 and its Impact on Employment and Investment

In the 1970s, Mexico’s labor law focus was primarily aimed at empowering the worker and securing greater freedoms and safety nets in response to powerful labor unions and social pressure. While the efforts to enact a meaningful Mexican labor law reform for the worker were noble and well intentioned at that time, the consequences were unfavorable to the national economy as well as to foreign investment. Efforts in this area at this time actually had the effect of causing unintentional harm to employees in terms of restricting job growth and economic dynamism.

Various aspects of the employer-employee relationship were never defined, and when in doubt, the courts always deferred to the employees. If a terminated employee was ever successful in an appeal, regardless of how long the appeal process lasted, the employer was liable for all the income the former employee would have earned in the intervening months and even years – several companies even went bankrupt after losing just one appeal. The minimum wage was based on a monthly salary, and the benefits and perks companies had to provide for employees resulted in reduced foreign investment. Companies didn’t want to hire employees that the government might not let them ever terminate. It was too risky to invest in Mexican labor when the possible adverse consequences of hiring workers were so apparent.

However, in December of 2012, the government enacted a sweeping Mexican labor law reform. Although fiercely opposed by some on the far left, today, there is a general sense of optimism about the effects of this reform. Employers now have more room to choose and shape their employee pool. One such portion of the new Mexican law allows employers to hire new workers on a trial or probationary period – thirty days for general staff and up to 180 days for management candidates. Additionally, hires may be made on a temporary basis. Mexican labor law now provides greater flexibility for companies to craft an elite workforce.

Due to the reform of 2012, dismissed employees in Mexico are limited to 12 months of unpaid wages if their termination is overruled. This is seen as a reasonable halfway measure to protect the worker, while reducing the risk of a fatal blow to the company should they face such a payment. Wages have also been hitched to an hourly system, now ensuring more productivity from employees. Unions have also been made more transparent. As a result of the reform of Mexican labor law, financial activities must be reported to the government every six months.

In light of these encouraging changes and the increase in foreign investment that has resulted from the Mexico’s labor law reform, President Enrique Pena Nieto recently announced his belief that Mexico’s economic growth could accelerate to 6% by 2018 from last year’s 3.9%. Tom Fullerton, an economics professor at the University of Texas, El Paso wholeheartedly agrees with President Nieto, adding that he believes that foreign direct investment will likely more than double in the coming months and years, as more and more manufacturers choose to establish production facilities in Mexico.

“The Tecma Group of Companies' services allow me to concentrate on making and selling wood pallets. I have Tecma handle all administrative functions, Mexican Customs, human resources, all permitting, as well as the legal aspects of manufacturing in Mexico. It’s a very good, complementary relationship. They provide me with a project manager, which means I don’t have to deal with a lot of individuals. I deal with one individual, who then deals with experts in all relevant disciplines on my behalf.”

“When we purchased the Dashmat product line, which is the product that we are manufacturing in Ciudad Juarez, we were able to establish a Mexico manufacturing plant with Tecma very quickly. They got us up and running very smoothly under their Mexico Shelter Manufacturing Partnership (MSMP). We like Tecma because it is a stable company that has been around for many years, and looks to be around for many more. Tecma appears to care about our Mexico business' success is very responsive to our needs.”

“Since we started, we have been able to maintain a competitive advantage over many of our competitors that have moved their manufacturing to China by reducing lead times to 4 weeks less than most of our competitors. This has given us the ability to compete on pricing against many of our competitors that have gone to China. We found that in our Juarez staff in Mexico we found a highly-trained workforce with strong background, and the capability to do mannequin manufacturing in Mexico.”

“More than a decade ago, Portage Electric Products Incorporated was faced with the reality that we were going to have to consider manufacturing in another country in order to maintain our competitiveness in the global marketplace. We chose Mexico, as we could be here literally within hours, should the need arise. We chose the Tecma Mexico Shelter Manufacturing Partnership (MSMP) because it provided virtually everything we needed to begin with and support an ongoing Mexico manufacturing operation.”

This quarterly publication will be populated with content that is useful and relevant to readers that are contemplating Mexico investments, have operations already within the Republic, as well as to other individuals that have an interest in Mexico and its manufacturing sector.